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Here's Why We Think Farmers & Merchants Bancorp (NASDAQ:FMAO) Might Deserve Your Attention Today

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Farmers & Merchants Bancorp (NASDAQ:FMAO), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Farmers & Merchants Bancorp with the means to add long-term value to shareholders.

View our latest analysis for Farmers & Merchants Bancorp

Farmers & Merchants Bancorp's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, Farmers & Merchants Bancorp has grown EPS by 15% per year. That's a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. It's noted that Farmers & Merchants Bancorp's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Farmers & Merchants Bancorp remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 22% to US$96m. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
earnings-and-revenue-history

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Farmers & Merchants Bancorp's future profits.

Are Farmers & Merchants Bancorp Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Any way you look at it Farmers & Merchants Bancorp shareholders can gain quiet confidence from the fact that insiders shelled out US$418k to buy stock, over the last year. When you contrast that with the complete lack of sales, it's easy for shareholders to be brimming with joyful expectancy. It is also worth noting that it was Independent Director Jo Hornish who made the biggest single purchase, worth US$102k, paying US$34.14 per share.

On top of the insider buying, it's good to see that Farmers & Merchants Bancorp insiders have a valuable investment in the business. As a matter of fact, their holding is valued at US$32m. This considerable investment should help drive long-term value in the business. Those holdings account for over 8.2% of the company; visible skin in the game.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because on our analysis the CEO, Lars Eller, is paid less than the median for similar sized companies. The median total compensation for CEOs of companies similar in size to Farmers & Merchants Bancorp, with market caps between US$200m and US$800m, is around US$2.7m.

The CEO of Farmers & Merchants Bancorp only received US$718k in total compensation for the year ending December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Farmers & Merchants Bancorp Worth Keeping An Eye On?

One important encouraging feature of Farmers & Merchants Bancorp is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Farmers & Merchants Bancorp that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Farmers & Merchants Bancorp, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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